'Pay for Delay' Deals Between Drug Makers Becoming More Subtle, Panel Concludes

Pay for delay deals aren't dead, but they have become more complicated - and more subtle.

That was the conclusion of panelists at an American Bar Association-sponsored discussion Thursday looking at the state of pay for delay settlements between brand name drug makers and would-be generic competitors.

According to the Federal Trade Commission, such settlements, where a brand name drug company strikes a deal with a generic rival to postpone the introduction of a generic version of a drug, cost consumers and taxpayers $3.5 billion annually in higher drug costs. Courts have generally approved the deals, but legislation is pending that would make it much more difficult for companies to defend such arrangements.

Panelist Bradley Albert, deputy assistant director of the Federal Trade Commission’s health care division, broke down settlements between brand name and generic drug companies for the past eight years. According to FTC data, there were 28 “potential” pay for delay settlements in fiscal year 2011, down slightly from 2010, when there were 31. However, pay for delay deals in 2011 made up only 18 percent of final settlements. By contrast, in 2006, they constituted 50 percent of settlements.

Moderator Eric Grannon, a partner at White & Case, where the event was held, noted that pay for delays seemed to “peak in 2006,” and that in his own practice, he’s seen “a significant drop-off” in the deals since then.

Albert countered that the deals “aren’t dead. They’re alive and well and continue to pose a substantial cost to American consumers.”

What’s changed in recent years is how they’re structured. Jerome Swindell, assistant general counsel at Johnson & Johnson, said he was struck by the absence of hefty cash payments from brand name drug makers to generics to keep them out of the market.

Scott Perwin, a partner at Kenny Nachwalter who represents antitrust plaintiffs, agreed. “There’s been an evolution of agreements from cash to more sophisticated transactions,” he said, adding, “From a plaintiffs’ lawyer perspective, it’s a lot easier to challenge a cash transaction.”

The most common deals involve authorized generics – when a brand name drug maker introduces a generic version of its own drug to siphon market share from the first-to-file generic challenger.

According to Albert, a promise not to introduce an authorized generic was the most common inducement for generic drug makers to delay market entry, occurring in 56 of the 125 settlements involving compensation and restrictions between 2004 and 2011.